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Daily Archives: November 16, 2009
Andrew Sentance, an MPC member has become the first Bank of England official to match his rhetoric to its rosy forecast, writes Chris Giles of the Financial Times. Good for Sentance. This is a very welcome development. The Bank was stretching its depleted credibility to the limit in persisting with forecasting a strong recovery while saying the opposite.
The news from Bernanke’s speech today seems to me that the Fed is looking to the dollar and commodity prices as influencing inflation and inflation expectations. This confirms similar themes I had picked up from private discussions with policymakers. Most people seem to think the Fed has to adopt one of two extreme positions on the currency: (1) policy should be completely indifferent to the dollar, or (2) policy should be based entirely on a currency objective. This is silly. Bernanke seems to me to be articulating a more middle-of-the-road position: the Fed regards the dollar as one of a number of material factors that influence the outlook and the stance of policy.
Liu Mingkang – the Chinese bank regulator who attacked Fed monetary policy over the weekend for fuelling the carry trade – is a sharp guy and worth taking seriously. But China would do well to acknowledge that it shares some responsibility for preventing a new wave of asset price bubbles across the emerging world. The best way to deal with capital inflows is to allow your currency to appreciate – but other emerging economies cannot do this, at least to the extent necessary, because China is not allowing its currency to appreciate. Not yet, anyway.
As the IMF joins calls for a stronger yuan, a Xinhua report on Saturday said the Chinese government would not allow the renminbi to appreciate against the dollar in the short term. Just hours before Obama was due to arrive in China, the authorities there warned that the Fed is fuelling speculative investments and endangering the global recovery through loose monetary policy.